The ongoing decline in gold prices persists, with some traders even betting that the pain of falling prices could last for around two more years. This precious metal's sell-off is only intensifying. The world's largest gold ETF by market value, traded under the ticker GLD in the US stock market, has now fallen roughly 25% from its intraday record high set in February. Options traders focused on this fund continue to shift heavily towards bearish positions, currently signaling a trajectory for further significant declines.

This series of developments is likely to fuel expectations for Federal Reserve interest rate hikes, further drive US inflation expectations, and bolster the upward momentum of the 10-year US Treasury yield—often called the "anchor for global asset pricing"—thereby continuing to severely pressure gold prices. In early Asian trading on Thursday, gold futures and spot prices opened lower for a third consecutive day. Spot gold fell as much as 0.9% in initial trading to around $4,036 per ounce, following a 4.4% drop in the previous session. The latest escalation in conflict risks prolonging the war that has disrupted global markets and stoked inflation concerns.

Has Gold's Decline Run Its Course? Options Market Bets on a Two-Year Winter

Even as the price of the GLD gold ETF fell another 3% on Wednesday, options traders sold significantly more call options than they bought. According to data from ThinkOrSwim and SpotGamma, of the $200 million in option premiums traded, $130 million was related to put options. Among the top 10 contracts by volume, eight were puts, and over half of the put option premiums traded at the ask price or higher, indicating these contracts were predominantly being purchased. Currently, the most heavily traded put option contract for GLD is a $380 strike price contract expiring today, which is in-the-money. The second most popular is a put option expiring in June 2028 with a strike price of just $240—priced at $11.50 per contract. This represents a deeply bearish bet, wagering that the gold ETF price will fall another 40% over the next two years.

"The Turkish central bank is selling gold and buying dollars in an attempt to support the lira; Gulf states—Qatar, the UAE, Saudi Arabia—need massive funds for the war, so they may also have been selling highly liquid gold," said Nigam Arora, founder of the Arora Report, in a telephone interview. "Meanwhile, the Indian government has significantly increased gold tariffs, and anyone looking only at technical charts has their stop-losses almost all set below $4,400. Once it breaks below that level, they have to start selling." Gold prices are currently more than one-fifth lower than their trading levels before the outbreak of war in late February. Gold recently broke below its 200-day moving average, a widely watched long-term technical indicator. As this line is seen as a key level by institutional investors, it has triggered additional selling.

Some options information from gold mining companies might offer a slightly more hopeful perspective. In the GDX ETF, which tracks the world's largest gold mining companies, call option volume on Wednesday more than doubled put option volume, with three times as many call options bought as puts. The largest single trade in the fund that day involved selling 2,000 at-the-money puts and calls expiring in December 2028, a nearly $8 million short straddle position. This position would profit handsomely if GDX expires anywhere between roughly $35 and $115.

"When gold was above $5,000, gold mining stocks never rose to the levels they should have," Arora stated. "So if you want to invest in precious metals, GDX is the better value play because if their average cost is around $1,500, their profits are quite substantial."

Middle East Conflict Transforms into Inflation Shock, Gold Trapped in "More Turmoil, More Decline" Paradox

Gold prices seem to have difficulty shaking off their weakness, at least in the short term. A key reason is that this round of Middle East geopolitical risk is not being interpreted by the market simply as a "safe-haven buy gold" scenario. Instead, it is being repriced as a macro shock chain: "rising oil prices → elevated inflation expectations →升温的Fed rate hike bets → stronger real rate expectations and a stronger dollar." The dominant pressure on gold currently is not insufficient geopolitical panic buying, but rather that geopolitical conflict, via energy prices, is raising the "opportunity cost of holding a non-yielding asset."

As US-Iran tensions escalated, spot gold fell nearly 5% at one point on June 10th, hitting its lowest level since March. The reason was precisely that rising oil prices reinforced inflation and future rate hike concerns. Pricing data from the interest rate swap market shows that traders are still fully, 100% pricing in a Fed return to rate hikes in December, largely in line with the hawkish betting path of bond market traders. The CME FedWatch Tool similarly shows traders unanimously betting on a December Fed return to hikes, with some even betting on a start to the hiking process as early as October.

Gold's short-term technicals and derivatives sentiment are also weak. GLD is down 25% from its February intraday record high. On a recent day, $130 million of the $200 million in option premiums traded were related to puts, with eight of the top ten contracts by volume being puts. Notably, the June 2028 expiry put with a $240 strike became the second most popular contract, meaning some traders are betting on significant further downside over the next two years. While such extreme bearish option trades cannot be directly equated to the market's baseline forecast, they do reflect that the defenses of gold bulls are being breached consecutively. On one hand, narratives of the Turkish central bank and Gulf states selling gold for dollars or to supplement fiscal/war funds are suppressing physical gold demand. On the other hand, India's increased gold tariffs and the breach of key technical levels by spot gold and GLD prices, triggering stop-losses, are also exacerbating trend-based selling pressure.

Normally, war escalation would enhance gold's safe-haven attributes. However, in the current environment where US core CPI remains under control while headline CPI is being pushed up by energy, the market is more worried about a "stagflationary oil price shock" than pure safe-haven demand. Consequently, gold's traditional safe-haven premium is being offset by higher real rates, a stronger dollar, and rate hike expectations. A recent research report from the European financial institution ING pointed out that geopolitics alone is insufficient to drive a sustained rise in gold. The upward movement of US Treasury yields, the dollar, and expectations for the Fed's benchmark rate remain the key macro variables suppressing gold price gains.